Example of equalancy the price ratio, Financial Accounting

Assignment Help:

Natasha's income is $300 per month. She spends all of it on tickets to concerts and films. A concert ticket costs $15 and a fi lm ticket costs $10. Her marginal rate of substitution for concerts with films, MRSCF , is F/C, where C stands for the number of concert tickets and F stands for the number of films.  Fractions are allowed-for example, if she buys half of a concert ticket, that means she goes to a concert every other month). How many film tickets will she purchase, and how many concert tickets?

The Solution Notice that MRSCF decreases as C rises and F falls. Therefore, each of Natasha's indifference curves has a declining MRS. To find a best choice, we look for a bundle on her budget line that satisfies the tangency condition.

At Natasha's best choice, her marginal rate of substitution between films and concerts equals the price ratio: MRSCF _ PC/PF . Substituting the information contained in the statement of the problem gives us the following: F/C _ 15/10 _ 1.5. In other words, Natasha purchases 1.5 times as many movie tickets as concert tickets.

The formula for Natasha's budget line is PCC _ PFF _ 300. Substituting the values of the prices into this formula, we have 15C _ 10F _ 300. Using the fact that F _ 1.5C gives us 15C _ 10(1.5C) _ 300, or 30C _ 300. So C _ 10, and F _ 15.

Natasha purchases 10 concert tickets and 15 movie tickets.

 


Related Discussions:- Example of equalancy the price ratio

Calculate and graph the average annual returns , This is an individual asse...

This is an individual assessment contributing 50% of your marks for the module. The assignment is intended to help you develop skills of implementing financial models in Excel. The

Effective vs nominal rates, In the above illustration we have consider how ...

In the above illustration we have consider how the future value modify along with the modification in frequency of compounding. So as to understand the relationship among effectual

Significance in working capital cycle, For several firms trade payables - s...

For several firms trade payables - suppliers of goods and services - represent the major component of current liabilities the amounts owed by the company which have to be repaid wi

State the role of accounting information, State the role of Accounting info...

State the role of Accounting information Accounting information has a significant role to play in reporting the extent to which different groups have benefited from the busines

Leslie, My trial balance is off by $304 and I can''t find my error

My trial balance is off by $304 and I can''t find my error

Illustration of change in profit sharing ratio, Illustration of change in p...

Illustration of change in profit sharing ratio A, B and C have been trading as equal partners having capital contributions of £400,000, £300,000 and £200,000 respectively. They

Venture capital, concept meaning features scope importance origin initiativ...

concept meaning features scope importance origin initiative in india

Amortization of patents for year 2010, Ely purchased a patent (with a remai...

Ely purchased a patent (with a remaining legal life of ten years) from Backo on January 1, 2010 for $300,000. Ely expected to use the patent for five years. The carrying value on B

Division of the trust-trusts laws and accounts, Division of the trust T...

Division of the trust The safeguards consist in the division of the trust funds into portions.  Before this division takes place, the investments are revalued in order to deter

Very difficult financial account question, Ask questSarah is the sole distr...

Ask questSarah is the sole distributor agent in her area for Holmes Kitchen Tiles. Sarah purchases the titles at a trade discount and annually in May receives an agency commission

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd